London property to lag behind rest of UK

First time since 2009 that prices across UK have held up better than those in capital

House price increases across the UK are set to outperform those in London during 2015, for the first time in six years, housing analysts predict.

The Centre for Economics and Business Research (Cebr) said it expects UK house prices generally to increase by 1.5% this year, while property values in London fall by 3.6% during 2015 following "years of over-performance".

This would be the first time since 2009 that prices across the UK have held up better than those in the capital.

But the predicted London price dip will not last for long and by next year, the capital is expected to have pulled back ahead of the rest of the UK once more. Property values are expected to increase by 2.7% in London and by 2.3% across the UK generally in 2016.

Cebr said that the London housing market tends to be particularly affected by the uncertainty of the outcome of the general election - but in the longer term, underlying factors such as economic growth and a lack of housing for buyers to choose from in the capital will push prices upwards.

In January, Cebr said that UK house prices would fall by 0.6% this year - but it has revised its prediction upwards, saying that changes to stamp duty in December, which made the tax cheaper for the majority of home buyers liable to pay it, have been felt sooner than expected - with buyers able to put the cash they have saved on stamp duty towards their deposit.

The overhaul of stamp duty means that instead of paying a single rate of tax based on the value of a property price, home buyers now only pay the rate of tax on the part of the property price that falls within each tax band. The "tipping point" at which the tax has now been made more expensive for buyers liable to pay it comes when homes are worth upwards of £937,500.

As the housing market recovery took off in 2014, house prices in London increased by 17.4%, while property values across the UK generally increased by 10%.

London has been a driving force behind the housing market pick-up, but towards the end of 2014, experts started to report a more evenly-balanced housing market across the country - with price pick-ups rippling out from London to other areas as buyers started to look for value elsewhere.

There was also a growing mood of caution, as toughened industry-wide mortgage lending rules under the Mortgage Market Review (MMR) came into effect and house hunters showed signs of becoming less willing to meet asking prices.

Explaining its forecast of a price dip for London this year, Cebr said the strength of sterling against the euro, concerns about the impact of a possible mansion tax and heftier stamp duty rates on high-end London properties have all hit demand from overseas buyers.

It said that fewer new buyer enquiries and properties taking longer to sell are also an indication of prices being set to edge down in London.

Outside London, a decline in overseas interest in UK property would be much less strongly felt, Cebr said. At the same time, it said most home buyers have benefited from the recent stamp duty changes and an improving labour market which has boosted people's spending power.

Nina Skero, Cebr economist and author of the report, said: "Outside of London, the outlook for house prices this year has improved after a few months when the market appeared to be coming off the boil. December's stamp duty changes, as well as rising household incomes, are lifting prices in many parts of the UK.

"In London, however, we expect prices to decline by 3.6%, driven by a significant weakening at the prime end of the market. A potential mansion tax, reduced overseas interest and hefty new stamp duty rates have hit demand for high value property."